Calculations
You really should perform several calculations when comparing the ARM 
and Fixed loans .
First, enter the true values for the interest rates and caps and press the calculate
button. The results will yield "the Worst Case" scenario for comparison. The
calculator will assume that the loan will go up by the maximum amount it can for each
adjustment period. This information is useful to ensure you can "stomach" the
worst case. However, rarely does the worst case actually occur.
Try using the calculator to also approximate more realistic scenarios.
For instance, try changing the "Maximum Cap/Period" to .5% or 1%. This assumes
that the loan will go up only .5% or 1% each period. This scenario assumes a very modest
rise in interest rates. The actual and true interest rate scenario may be somewhere in
between these two situations.
Arm vs Fixed
Calculator Fields
Enter the entire amount of the loan next to the field marked
Loan Amount. Make sure this amount is the net amount after deducting your
down-payment and any points you need to pay. This value should also include all other
moneys you might need to purchase the home. For instance, some home buyers establish a
consumer line of credit and this might actually increase the loan amount. The Loan Amount
should be entered in whole dollars. Don't reduce the amount to thousands and don't use
commas! For example, if the amount of the loan is two hundred thousand dollars, enter
200000 in the field.
Enter the term of the loan next to the field marked Loan Term.
The term of the loan is the number of years you have to pay-off the home loan. For
example, if the loan is for thirty years, enter 30 in the field.
Enter the Fixed interest rate of the loan next to the field marked
Interest Rate. The interest rate should be entered as a percentage but you can
also enter a decimal number if the percentage is not a whole number. For example, if the
interest rate of the loan is eight point two five percent, enter 8.25 in the
field. If you can't fit the rate in to the box, round-off the number to the nearest
decimal.
Enter the starting interest rate of the ARM loan you are comparing, next
to the field marked Starting Interest Rate. The starting interest rate is
usually a teaser rate and is usually less than a comparable Fixed rate loan. Enter the
value following the instructions listed for the Fixed interest rate.
Select an Adjustment Period for the ARM loan, next to the field marked Adjustment
Period. You must choose one of the options provided. Select the term by clicking
your mouse on the down arrow [V] button.
Select a Maximum Cap/Period for the ARM loan, next to the field marked Maximum
Cap/Period. You must choose one of the options provided. Select the term by
clicking your mouse on the down arrow [V] button. The maximum cap is the amount the loan
will go up during each adjustment period. Even though you loan may have a specific cap,
you can experiment with this value by choosing a smaller more realistic interest
adjustment and observe how it affects your payment, break-even and cumulative savings.
Lifetime Cap - TAKE SPECIAL NOTE
Select a Lifetime Cap for the ARM loan, next to the field marked Lifetime
Cap (added to start rate). TAKE NOTE: This cap value will be
added to the start rate to yield the true Lifetime cap of the loan. You must choose one of
the options provided. Select the term by clicking your mouse on the down arrow [V] button.
Choose the value that results in the true Lifetime Cap when added to the Starting Interest
Rate. For example, if you start rate is 6% and your True Lifetime Cap is 14%, choose 8%.
Go Back To Calculate
